Federal Budget Update 2020
1. Changes to personal income tax rates
The Government has announced that it will bring forward changes to the personal income tax rates that were due to apply from 1 July 2022, so that these changes now apply from 1 July 2020 (ie from the 2021 income year). These changes involve:
- increasing the upper threshold of the 19% personal income tax bracket from $37,000 to $45,000.
- increasing the upper threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.
These changes are illustrated in the following table (which excludes the Medicare Levy).
2. Extended Instant Asset Write-off
The Government has announced it will introduce the following changes to the Capital Allowance provisions:
Businesses with an aggregated annual turnover of less than $5 billion will be able to claim an immediate deduction (what the Budget terms as 'full expensing') for the full (uncapped) cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use, where the following requirements are satisfied:
i. The asset was acquired from 7:30pm AEDT on 6 October 2020 (i.e., Budget night).
ii. The asset was first used or installed ready for use by 30 June 2022.
iii. The asset is a new depreciable asset or is the cost of an improvement to an existing eligible asset, unless the taxpayer qualifies as a small or medium sized business (i.e., for these purposes, a business with an aggregated annual turnover of less than $50 million), in which case the asset can be second-hand.
3. Small Business - Loss Carry Back
Under the announced measures, companies with aggregated turnover of less than $5b will be eligible to generate cash-flow by offsetting tax losses incurred in the 2020, 2021 and 2022 income years against profits taxed in 2019 or later years. The tax refund will be available on election by eligible companies when they lodge their 2020-21 and 2021-22 tax returns. Companies will need to wait at least until they lodge their 2021 income tax return before they reap the Tax Loss Carry Back refund. For companies with a 31 December substituted accounting period, this could be as early as January 2021.
Companies may be able to maximise their Tax Loss Carry Back refund by taking advantage of the expanded instant asset write-off for small business tax concessions deductions announced with this Budget.
Limitations of this measure are:
- The company must have an aggregated turnover of less than $5b. Aggregated turnover includes the turnover of associates (including non-resident associates).
- The amount carried back must not be more than the earlier taxed profits.
- The tax offset must not cause the company's franking account to go into deficit.
- The measure is only available to companies – businesses operating through other structures (eg trusts) will not benefit.
Companies that do not elect to carry back their losses will carry them forward as normal.
The Budget does not include any detail on how this measure will operate in practice.
4. Expanded Small Business Tax Concessions
The Government has announced that it will expand the concessions available to Medium Sized Entities to provide access to up to ten Small Business Concessions.
For this purpose, a Medium Sized Entity is an entity with an aggregated annual turnover of at least $10 million and (less than) $50 million.
The expanded concessions will apply in three phases, as follows:
- From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.
- From 1 April 2021, eligible businesses will be exempt from FBT on car parking and multiple work-related portable electronic devices, such as phones or laptops, provided to employees.
- From 1 July 2021:
i. Eligible businesses will be able to access the simplified trading stock rules, remit pay as you go (PAYG) instalments based on GDP adjusted notional tax and settle excise duty and excise-equivalent customs duty monthly on eligible goods.
ii. Eligible businesses will generally have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021.
iii. The Commissioner of Taxation's power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.
5. JobMaker Hiring Credit
The Government will introduce a JobMaker Hiring Credit to incentivise businesses to take on additional young job seekers.
From 7 October 2020, eligible employers will be able to claim $200 a week for each additional eligible employee they hire aged 16 to 29 years old and $100 a week for each additional eligible employee aged 30 to 35 years old. New jobs created until 6 October 2021 will attract the credit for up to 12 months from the date the new position is created.
The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. Employers will need to report quarterly that they meet the eligibility criteria.
The amount of the credit is capped at $10,400
for each additional new position created. Furthermore, the total credit claimed by an employer cannot exceed the amount of the increase in payroll for the reporting period in question.
Should you require any further information, please call our Team on 02 6960 1200.